Indonesia December trade deficit narrows, but concerns linger

Published: 1 February 2013 2:51 PM

People shop at a department store in Yogyakarta January 24, 2013. — Reuters picJAKARTA, Feb 1 — Indonesia’s trade deficit narrowed in December, but exports fell much more than expected and some economists predict that 2012’s first annual deficit in history might not be the country’s last.

December’s deficit, announced today by the statistics bureau, was US$150 million (RM450 million), narrower than November’s revised US$610 million and below what was forecast in a Reuters poll.

Cutting the deficit was a surprise 5.5 per cent decline in December imports from a year earlier. But exports were a surprise in the other direction, falling by 9.78 per cent on-year compared with the poll’s forecast of a 2.59 per cent drop.

“The key question is whether the December number represents a change in trend for the trade deficit — is the worst now over? We doubt it,” wrote Credit Suisse economist Robert Prior-Wandesforde wrote in a research note.

“In particular, the weakness of imports seems very odd, given the apparent on-going strength of domestic demand, and is unlikely to last,” he wrote.

Prior-Wandesforde said that while exports should recover over time, “Indonesia’s consumption and investment growth is likely to outpace that of most of its trading partners.”

Central to last year’s high levels of imports has been robust economic growth. Many economists believe that in 2012 — for which full-year data will be released on February 6 — Indonesia grew about 6.5 per cent.

A factory survey today also pointed to surprising weakness in the manufacturing sector in January, though most economists say Southeast Asia’s largest economy remains on track for another year of robust growth.

The HSBC Market survey showed manufacturing activity contracted in January for the first time since May, even though new export orders rose.

The January purchasing managers’ index was 49.7, compared with 50.7 in the previous reading and a record high of 51.5 in November. A reading below 50 signals contraction in manufacturing activity.

Similar surveys today also highlighted patchiness in other Asian economies at the start of 2013, with China’s factory sector managing only a shallow rebound.

Indonesia always produced an annual trade surplus — until 2012. The emergence of monthly deficits and a growing current account deficit last year added to worries about the rupiah , which was the worst-performing emerging Asian currency in 2012.

Today, the rupiah fell 0.7 per cent to 9,755 per dollar. For the year so far, it has shed 1.3 per cent.

December marked the ninth consecutive month that exports fell year-on-year. The October deficit, US$1.54 billion, was a record high.

For all of 2012, the trade deficit was US$1.63 billion. Behind the gap were weak global markets and sharp increases in some, imports, such as machinery and fuel.

For all of 2012, exports fell 6.61 per cent from the previous year, while imports rose 8.02 per cent.

“While the December trade deficit shrank, we don’t exactly read today’s data as encouraging at all given that exports remain in the doldrums for now,” said Gundy Cahyadi, economist at OCBC Bank in Singapore.

“This continued to signal that the trade account may remain under pressure in the near-term,” he said.

Uncertainty over the trade and current account deficits suggests the authorities are increasingly reluctant to let the rupiah fall too fast or too much.

“The authorities are set to ensure better dollar liquidity onshore going forward. This should provide some support for the rupiah despite the still gloomy outlook on exports,” Cahyadi added.

Today, the statistics bureau also reported a pick-up in inflation in January due to higher prices for food, beverages and tobacco products. The annual headline inflation rate was 4.57 per cent, compared with 4.3 per cent in December and a poll forecast of 4.5 per cent.

During the month, Jakarta had massive floods that hit distribution in the capital.

The relatively low inflation, coupled with a still gloomy global economic outlook, means Bank Indonesia is likely to maintain its benchmark rate unchanged at a record low of 5.75 per cent at a February 12 meeting.

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